Investment Property Loan

[MichaelPark]

Hi guys,

We currently have 2 home loans and 1 is about to come out of its fixed term. One is currently being rented out whilst we live in the other. Just wondering what would be the best loan to setup for the investment property in regards to IO vs P&I. And would it be worth refinancing that loan to 80% LVR and putting that in onto our PPOR?

Thanks very much

 

[Peter_Tersteeg]

In it's simplest form, keep the investment loan I/O and divert the funds your saving into paying off the PPOR (non deductible) mortgage.

If you want to get more technical and you have the discipline, have both loans I/O and divert all the saved funds into a separate offset account against the PPOR loan. This gives you a bit more flexibility in the event you want to turn your PPOR into an investment at some future point.

 

[Redom]

Hey Michael - I assume part of your question is motivated by tax.

If you refinance your investment up to 80% and put additional funds into your PPOR - that extra debt WONT be deductible. Its about the purpose of those funds - if the purpose is pay down your PPOR, you cant claim greater interest deductions.

In terms of loan structure - IO is the way to go for the investment.

Part of your loan structure consideration should take into account your intentions in the future. For example, do you plan on purchasing another property? If you do, it may make sense to refinance/equity release up to 80% now and leave the additional funds available for you to invest with when required.

In the above scenario, your loan purpose will be to purchase an investment - which should make those funds deductible once used.

Cheers,
Red

 

[Colin Rice]

And would it be worth refinancing that loan to 80% LVR and putting that in onto our PPOR?

If I am reading this ^^^^^ correctly then would not advise to do so.

"Purpose of funds" determine if a loan is tax deductible so increasing an IP loan to put into a PPOR loan will cause issues.

No harm in increasing the IP loan to 80% and placing extra funds in a separate loan split that can then be used for a variety of purpose depending on your objectives. In fact would recommend doing so in the current money market serviceability permitting.

 

[Jamie M]

Just wondering what would be the best loan to setup for the investment property in regards to IO vs P&I.

Best to keep IP debt as IO if you've got PPOR debt. If there's any debt you want to pay down, it should be non deductible debt first.

Cheers

Jamie